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SMSC would suggest to a client with a nuclear commitment such as
requirements produced by ventures under their control is highly sirable. Accordingly, we believe that WPPSS should be in some exploration arrangement such as the Fremont Energy offer, as well as higher and lower risk ventures. Within a category encompassing offerrings such as Fremont Energy, we would rate the offer as better than average as far : as resources are concerned. As to the economics, this may not be the case due to the relatively low grade which is expected from this project and due to some of our uncertainties as to the commercial arrangements.
I must stress that all of our opinions as stated above as well as those in Attachment 2, are necessarily cursory. The magnitude of the work far outstripped the time available for our review and, accordingly, we do not feel that this review is sufficient to either strongly advocate or condemn this offerring. I regret that we could not have done a more thorough review, but believe that we have accomplished all that was possible within the time available. Certainly, we would be pleased to evaluate this project more thoroughly in the future so as to come up with a more definitive response. In particular, we would like to assess this offerring relative to the others which are available to HPPSS, as well as perhaps to some which might evolve from a formal solicitation, which I understand has not been undertaken.
I hope you find this material useful. If you have any questions, please don't hesitate to call.
CC: D. Hill, w/attachments
Very truly yours,
Sy Jaye Vice President
General Manager--Utilities Division
S. Stoller, w/attachments
C. Barnes, w/attachments
We have not attempted to review these documents in a detailed manner,
Comments on "Consulting Agreement"
Paragraph 7.2 WPPSS is obligated to pay Fremont Energy a bonus
Paragraph 11 The payment for acquisition of new lands within the
Paragraph 14.1 The Consultant is given the duty of directing and
99-374 O 78 18
Paragraph 14.5 WPPSS is apparently responsible for providing
Paragraph 17 -- The Consultant is required to follow good practice
We cannot understand the meaning of this item.
Paragraph 23 - I question whether the parties should be allowed to assign their participation in this agreement without the consent of the other. PPSS is primarily purchasing a land position and
"know-how" from Fremont Energy. Under this provision, Fremont
Comments on "Mining Deed"
Paragraph 3.1 Fremont Energy is to obtain a 10% overriding
After NPPSS has recovered their capital expenditures, then Fremont obtains a 50% overriding royalty. No provision is made again for WPPSS operating costs. It is not even clear whether Fremont would be required to pay their 50%.
As this paragraph is the principal method by which Fremont Energy will proceed and considerable monies will be involved, I believe there are a great many corrections desired. Aside from questions of principle, the amounts of money are sufficiently substantial that verbal understandings are clearly insufficient.
Paragraph 7.2 "Fremont shall have free access to the milling facilities or facilities for transporting and storing materials and to any facility of PPSS and the Operator." Is it the intent of this paragraph that Fremont will obtain milling services from HPPSS for their share of the U20 at no cost. If this is true, then WPPSS' milling costs would be doubled, which could easily make the entire project uneconomic.
Paragraph 8 Our same comment as per paragraph 11, Consulting
Paragraph 10 The apparent duplication in the Operator's duties and Consultant's duties has already been pointed out in Section A above.
Paragraph 14 -- WPPSS is apparently required to pay all taxes. I
Comments on "Option Agreement"
The Option Agreement obtains many of the same flaws described under the Consulting Agreement and the Mining Deed. A consistent correction of those would essentially correct the Cption Agreement.
In studying the paleogeomorphology of the present Granite i'ountains (Sweetwater Arch), a number of paleodrainage headwaters favorable as uranium depositional environments can be interpreted which can be projected into the outcrops of the Wasatch-Battle Spring in the area. The Crook's Gap district is located along the projection of one of these paleodrainages; the Utah Construction deposit is in the area of the projection of the so-called Cottonwood paleodrainage; and the Colorado Corporation discovery is on the projection of the so-called Nuddy Sap paleodrainage. Drilling in the Lost Soldier area by the Colorado Corporation encountered regionally anomalous stratigraphic conditions which confirm the presence of local paleodrainage environments within the adjacent area of massive fine-grained clastics. The Lost Soldier uranium deposit occurs in an alternating sequence of fine to coarse sandstone, locally thick conglomerate beds with cobbles up to six inches in size, shales and lignites. Carbonaceous trash and residue is common in all lithologies within the area of the ore occurrence. The distribution of facies development indicates deposition in and adjacent to a southwest flowing stream with considerable transport capacity.
There are many anomalous outcrops throughout the area of interest; in one instance, a complete roll front crops. One of the above-mentioned paleochannels is within 1/4 mile of the northeast fringe of claims. Some geologists believe that the granite host mountains which divide the Red Desert Basin and the Gas Hills Basin contributed 80% and 20%, respectively, to the basin sands. Thus, the arkosic sands in this part of the Red Desert are up to 5000 feet thick. A recently discovered ore deposit just east of Farson confirms the beliefs of some geologists that a major paleosystem derived from the Oregon Buttes area also channels into the Red Desert Basin.
Detailed definition of this facies development at the present time is difficult due to the wide spacing of drill holes, the structural complexity of the area, and rapid lateral changes in lithology. The base of the Battle Spring is poorly defined and difficult to pick, probably due to scouring into the underlying Fort Union formation and reworking of pre-Battle Spring sediments. Previous published work indicates that the Battle Spring in part is Paleocene in age. Roll front alteration, in the absence of more extensive drilling, is the best exploration guide, and has been used by Fremont and its consultants to help select exploration targets. The presence of the oxidation products, hematile and limonite with some ore grade intercepts can be "footprints" leading to major ore bodies.
In adjacent areas, the ore occurrences are located above and laterally up-dip to the east by bleached and/or oxidized sandstones in which feldspar fragments have been kaolinized and pyrite has been largely removed or converted to limonite. Below and laterally down-dip to the west, the sandstones are light to medium gray, unoxidized, and unbleached. This relationship indicates that uranium concentration and oxidation are inter
related processes. It appears that oxidation related to the present erosion cycle is presently leaching or further modifying the uranium Occurrences. The water table is at about 50 feet; the disequilibrium factor is probably 1.0 to ì.l.
Consultants, Chico and later, Fruchey, both highly competent, have identified some 40 exploration target areas. The most popular of these have been selected and they number 8 to 10. One of these, the MATT property, is probably the most favored. It could be over the Farson/Oregon Buttes paleo-channel.
Other Activity in Area
A number of companies are active in the area.
Kerr McGee/Colorado Corporation
Miner Explor. (Union Pacific)
Among these are:
Texas Gulf Sulfur
Rocky Mountain Energy
Union Oil has announced intent to build a production center adjacent and to the northeast of these properties. This will be a 3000 TPD complex using (probably) 7 feet of 0.03 as cutoff.
Murphy has been involved with these Red Desert claims since 1967 when 10 oil well prospect drill hole logs showed radioactive anomalies. His company has invested in about 200,000 acres of unpatented lode mining claims, radiometric surveys and aerial color photography. Claims are all of the unpatended lode type. These number to +13,000 claims. The cash outlay to date is $1 million. The exploration holes drilled to date on the West Red Desert prospect, proper, amount to less than one hole per four sections. In view of the fact that drilling depths average less than 500 feet and that many of the holes are not oriented for best assessment of the geology, it becomes apparent that this vast prospect is virtually unexplored. Evẹn though, it is encouraging to note fine to medium grain sandstones of fair thicknesses throughout much of the drill area. The fact that these sands are arkosic strongly suggest a granite mountain source which is consistent with the Wasatch, Battle Spring host sands containing uranium deposits in adjacent areas of the Red Desert. Thus, the plumbing is likely for oxidizing mineralizing solutions to have migrated down-dip from the granite mountain provenance through the massive fan like arkosives into the distributory channel deposits. The presence of these favorable sandstones; the reported alteration on outcrop and in the subsurface; the surface anomalies; and the trace of low grade mineralization recorded on gamma logs all point to a very interesting prospect.